Yahoo Q2 net income down, lowers 2007 guidance

Yahoo net income fell year-over-year in a quarter that saw Yahoo leadership change hands amid criticism that the company failed to capitalise on the explosive growth of the search-engine advertising market.

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Yahoo net income fell year-over-year in a quarter that saw Yahoo leadership change hands amid criticism that the company failed to capitalise on the explosive growth of the search-engine advertising market.

Yahoo also lowered guidance for the third quarter and for 2007 as it reported financial results Tuesday.

Tuesday marks the first time co-founder Jerry Yang faces investors for an earnings period since taking over the CEO position on 18 June, when former CEO Terry Semel stepped down. Yang is in the position of convincing Wall Street he has what it takes to improve performance at Yahoo, and he took an aggressive stance in a press statement ahead of the company's quarterly conference call.

"I am focused on doing everything we need to do to strengthen our business, capture long-term growth opportunities and create increased value for our shareholders," Yang said, according to the statement. "By sharpening our focus, speeding execution, building our technology and talent, and investing in key growth areas, we can put Yahoo on a clear path to fulfil its potential as an Internet leader."

Revenue excluding traffic acquisition costs for Yahoo's second quarter ended 30 June was US$1.244bn (£607m), slightly higher than the $1.242bn (£606m) Thomson First Call analysts had estimated. Net income for the quarter was $161m (£78.58m) or $0.11 per share, in line with analyst estimates and slightly lower than the $164m (£80.4m) or $0.11 per share for the same period in 2006.

Operating income for the second quarter of 2007 was $185m (£90.2m), a 19% decrease compared to $230m (£112.2m) for the same period of 2006.

Yahoo also offered new, lowered guidance for its third quarter and year-end results. Wall Street expected $1.304bn (£636m) in revenue for the third quarter, but Yahoo said Tuesday that revenue would be in the range of $1.17bn (£570.9m) to $1.31bn (£639m). Third-quarter earnings before interest, taxes, depreciation and amortisation (EBITDA) are now expected to be in the range of $380m (£185m) to $450m (£219m) rather than the $521m (£254m) Wall Street is currently expecting.

For 2007, Yahoo is now expecting revenue of $4.89bn (£2.38bn) to $5.19bn (£2.53bn) rather than Wall Street's current guidance of $5.199bn. EBITDA for 2007 is expected to be in the range of $1.775bn to $1.955bn rather than the current guidance of $2.063bn, according to Yahoo.

On a conference call Tuesday, Yang acknowledged he is doing a "top-to-bottom review" of Yahoo's business.

"There is a significant gap between where we are and where we need to be," he said, adding that it is with a "great sense of urgency" that he plans to evaluate Yahoo's business so the company can improve financial results quickly.

Some areas on which Yahoo will put more emphasis are display advertising, its publisher network and its online partnerships through its newspaper consortium, said Yahoo president Susan Decker, who was promoted to her current position when Yang took over as CEO. Previously, she was executive vice president and head of the Advertiser and Publisher Group.

Yang named cultivating a new employee culture of "teamwork, leadership and the desire to win" as a key objective in the near term. That initiative would include more hiring and changes in the executive ranks, he said.

Another aim is to speed up Yahoo's plan to trim fat and focus on core businesses such as online advertising, as well as to help its customers and advertisers build upon Yahoo's web-based services platform. The company also has to make decisions faster, executives said.

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